Wednesday, December 14, 2011

Oil production increased at New Zealand Tarakani Basin

New Zealand Energy Corp announced an update on production from its Copper Moki-1 well in New Zealand's Taranaki Basin. The well is free-flowing at an initial rate of approximately 580 barrels of oil per day through an 18/64th inch choke with a gas oil ratio of 970 standard cubic feet per barrel. NZEC has installed surface facilities to accommodate production of up to 1,000 barrels of oil per day.

The Company expects near-term operating netbacks in excess of US$90 per barrel. The oil is sweet and high quality and sells at a premium to the Brent reference price. NZEC anticipates establishing permanent facilities by mid-2012 that can be expanded to handle production from additional wells in the Copper Moki area.

Copper Moki-1 is NZEC's first well in the Taranaki Basin. Copper Moki-1 was completed in August 2011 and tested over a two-day period, during which the well flowed 1,100 barrels of 41.8 API oil per day and 855 thousand cubic feet ("mcf") per day of natural gas on a 28/64th inch choke. NZEC designed an extended production test at a restricted rate to evaluate the reservoir under constant operating conditions and flowed the well for 12 days with average production of 521 barrels of oil and 508 mcf of natural gas per day on a 20/64th inch choke.

New Zealand Oil Production

Following pressure build up, the well commenced production on December 10, 2011. Field production rates are expected to level out at 550 barrels of oil and 535 mcf of natural gas per day. Produced oil is being trucked to the Shell-operated Omata Tank Farm, approximately 45 km north of the Copper Moki well site, and sold to Shell as per an off-take agreement. NZEC is also evaluating options to market its natural gas production, given the close proximity of open-access gas pipelines and significant in-country demand for natural gas.

NZEC is finalizing its multi-well drilling contract for Copper Moki-2 and Copper Moki-3, delineation wells for the Copper Moki pool, and expects to commence drilling of Copper Moki-2 by year-end. The Copper Moki-2 well will be drilled from the same pad as the Copper Moki-1 well to target both the Urenui and Mt. Messenger formations. NZEC will continue to produce Copper Moki-1 as drilling proceeds, and could very quickly bring Copper Moki-2 on-stream using the same production facilities should the well yield oil and natural gas production. The Copper Moki-3 well will be spudded upon completion of Copper Moki-2 and will target multi-zone potential in the Mt. Messenger, Urenui and Moki formations.

Taranaki Basin

he Taranaki Basin offers an excellent opportunity to add substantial reserves and production in an environment of relatively low technical risks with established oil and natural gas infrastructure. NZEC holds and is operator on two large permits, Eltham (100%) and Alton (50%), totalling 615 net square km (152,066 net acres) directly offsetting known production and reserves.

NZEC’s two permits have already yielded 33 prospects or leads and substantial resource estimates of 730 million barrels OOIP and 66.7 million barrels of prospective (recoverable) resources using a conservative 9% recovery factor. NZEC completed an extended production test of its Copper Moki-1 discovery well in November and expects to bring the well on-stream in early December, bringing cash flow to the company and transitioning NZEC from an exploration-stage company to an oil and gas producer. NZEC plans to drill two more Copper Moki delineation wells (Copper Moki-2 and Copper Moki-3) starting in early December, and will continue to produce Copper Moki-1 as exploration proceeds.

Copper Moki Oil Well

The Taranaki is New Zealand’s sole oil and natural gas producing basin, accounting for 100% of the country’s current volumes of approximately 130,000 boe/day (55,000 barrels/day of crude oil and 460 mmcf/day of natural gas). The Taranaki Basin has been producing since 1934 when the first well came on-stream near New Plymouth. Average per-well productivity of approximately 325 boe/d in the Taranaki Basin is many times the North American average. NZEC’s two permits are surrounded by pools currently producing approximately 18,000 boe/d. Prior to NZEC’s involvement, however, only two historical exploration wells had been drilled in what is now the Eltham Permit area.

This region offers immense opportunities for further exploration and development. There have been only 400 wells drilled since 1950, virtually all of which relied on older technology (vertical wells completed without hydraulic fracturing) and conventional exploration ideas (sandstone reservoirs with structural traps). Until recently, substantial prospective lands remained unallocated and unexplored.

Geologically, the Taranaki Basin’s sediments extend from shallow burial at approximately 200 metres all the way to the deep basement at more than 6,000 metres. Hydrocarbon source rocks are believed to be deeply buried Paleocene and Cretaceous coaly rocks and shales. Drilling targets are primarily sandstones with some carbonates, with four horizons dominating to date: the Kapuni Group, which can be as deep as 4,000 metres and accounts for the majority of current basin production, and the generally shallower Moki, Mount Messenger and Urenui at depths of 1,000 to 3,000 metres.

NZEC sees the Taranaki Basin as an excellent opportunity both to drill unexploited prospects in known reservoir types and to maximize per-well results through the application of modern technology. This includes using modern seismic reprocessing and interpretation to identify the stratigraphic-structural traps that were overlooked in the past. In addition, the recent advent of horizontal drilling by other companies in the area has yielded excellent results, with initial productivity approximately 2.5 times the average rate for comparable vertical wells.